Focus – Construction Forecast – Construction market looks good for 2017
AUSTIN – What markets do you expect Austin Underground and the industry will see an increase in over the course of 2017?
All of our markets continue to expand. It appears that TxDOT will continue to release work coming out, so that means government markets are good. Commercial is still going strong. There are upticks in permits happening, which indicates that the subdivision and commercial market is still strong. It doesn’t seem like any of them are slowing down.
What do you foresee as the biggest challenges your company and others like it in the industry will face in 2017?
I see several challenging areas for the upcoming year. One area is increased labor competition. In October, the City of Austin instituted a minimum cash wage for its construction contracts, and we do quite a bit of city work. The minimum cash wage on those projects – and projects the city is giving tax credits to – is $13.50. There is some difficulty in knowing if it’s a job that requires this new minimum wage.
Another area is new competition moving in, and new companies starting up, due to the strong market. It creates some instability and downward pressure in the market. There are a lot of guys waiting for their chance to break into this market, and most of them are pretty competent in what they do. However, it takes time for someone starting out to figure out what their costs are going to be, and historically, these guys can bid way high or way low.
Finally, the election has left a lot of questions as to what is going to change with the new president coming in. This has led to more uncertainty with health care, which a big chunk of our cost, and there is a potential for oil prices to go up. These changes will increase our overall costs, so we are following these markets pretty closely.
How does Austin Underground plan to address and overcome these issues?
We are making sure we realize what the requirements are for the new minimum wage. It is a bigger issue for us if everybody has to get a raise, and we are training our people and talking about it.
A continued focus on retention is also key. We offer a lot of good benefits to our employees, and we try to do things that other guys don’t, in order to attract talent. The way we train and treat our employees is what makes for good retention in our company. For example, on a rain day, which happened a lot in 2016, we will do training so we don’t have a lot of down time for our guys and they have a steady paycheck.
What are Austin Underground’s plans for 2017?
I think we continue to grow. We’ve been seeing a 30 percent growth rate for the last few years.
We are working to continue to become a more specialized contractor in our different markets.
We will continue to shore up our people with advanced training to make us a more solid contractor. We also expect to increase our total employee count by 10 percent.
How would you sum up the last five years for business at Austin Underground?
After the downturn, a lot of commercial guys looked around to see who was still standing. We pushed in 2010 to get into commercial/institutional while the market was down. That’s really taken off in 2016 and has accounted for 20 percent of our revenue.
We’ve been on a steady increase. We’ve grown probably 300 percent in volume and size, and we’ve been able to penetrate different markets. We started purely as a municipal contractor, and we’ve added commercial/institutional. We are also starting to do a lot of TxDOT work.
How did Austin Underground survive the recession?
For us, we were pretty conservative internally. Financially, when the downturn hit, we didn’t have any debt, and we had been investing the money back in the company. We didn’t have to do pay cuts or lay anybody off. We were bidding jobs cheap to keep our guys employed. That has paid off, because we have had retention in our workforce.
Is that still the standard operating procedure?
We’ve had industry people who look at our books and say we are in the 95th percentile as far as lack of debt goes.
We have taken on some debt, and I don’t mind taking on a debt. However, it’s hard to project more than a couple years out, so you have to be careful as to what debt you take on.
What is the most important takeaway you’ve learned in the last year?
The past year for me has been more about developing good relationships.
Across the board we have to figure out which contractors we want to work with, those we don’t, and develop good relationships wherever we can.
Established in 2006 in Austin, Austin Underground Inc. builds water, waste-water, storm sewer and duct bank utilities in existing roadways with an emphasis on projects that have some degree of difficulty. –cw
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